This post has been updated to reflect recent developments. See below.
Name: The Insurance Laws (Amendment) Bill, 2008
Aim: Among other things, the bill would allow foreign investors to own up to 49% in local insurance companies, up from 26% currently.
It would also create rules that would allow foreign companies to invest in reinsurance companies, which are basically firms that insure insurance companies.
Why it is important: Companies in India’s nascent insurance industry are eager to get more foreign capital to grow their businesses.
India has 24 life insurance companies, and 27 general insurance companies, majority of whom have a foreign partner.
However, many of these companies, particularly in the life insurance sector, haven’t made any money since they were founded seven or eight years ago.
The companies say if they could raise fresh capital from overseas partners and use that to expand, they could become profitable sooner.
Who it affects? Insurance companies which have foreign ownership expect to get more foreign capital if the bill is passed.
Foreign companies such as the U.K.’s Standard Life PLC and Prudential PLC, Germany’s Allianz SE and MetLife Inc. of the U.S. are among the companies which operate in India. If they beefed up their Indian units, it could threaten the dominance of state-run companies in India’s insurance sector.
At present, Life Insurance Corp of India has more than two-thirds of the life insurance market, while four state-run firms control more than half the non-life insurance market.
Meanwhile, foreign reinsurers such as Munich Re and Berkeshire Hathaway, which have liaison offices in India, could consider expanding their business here.
What changes? If implemented, the bill would make it easier for insurance companies to raise capital, both from foreign and domestic investors.
Currently, India’s four state-owned general insurance companies are not allowed to raise capital from India’s stock market. The bill would allow them do so.
The bill could also help grow India’s reinsurance industry which currently has only one player – state-owned General Insurance Corp. The bill would allow GIC to raise funds from public markets.
In addition, the bill could help trigger fresh investments in health insurance. It would recognize health insurance as a separate business, as opposed to the current practice, where health insurance is sold as just another product by general insurance companies. This change could attract new companies, such as health insurer Aetna Group of the U.S., to enter India.
Criticism: Opposition parties are against allowing higher foreign investment in insurance companies, but are open to allowing insurance companies raise capital from the stock market.
What’s new? Late last year, the government proposed raising the foreign direct investment cap to 49% from 26% in insurance, a move which still awaits the required parliamentary approval.
Under that proposal, investments over 26% would have only been permitted after the approval of the Foreign Investment Promotion Board, a state-run agency. However, in an announcement last month, the government did away with the requirement for approval.
What next? The bill was initially introduced in the upper house of parliament in 2008, after which a special committee was set up to analyze and comment on it.
The committee submitted its report in December 2011. India’s federal cabinet approved the bill, but it is likely to find opposition in parliament.